Bell & Clements' CEO predicts opportunities, pressures
By Phil Zinkewicz
"There will be pressure all along the continuum--from retrocessionaires to reinsurers, to direct insurance underwriters; and those pressures will be felt by brokers, managing general agents, retail agents and, ultimately, consumers."
Peter J. Barrett is Group CEO of Bell & Clements, Ltd., in London, England.
In the early part of 2001, insurance industry experts and observers were talking about a slow, but steady hardening of the property and casualty insurance marketplace. After roughly 15 years of unprecedented soft market conditions, during which insurance buyers and reinsurance buyers were calling the shots and sellers of these coverages were virtually impotent in contract negotiations, insurance industry analysts were saying that some sanity was returning to the marketplace in terms of pricing and coverage conditions, albeit on a line-by-line basis.
Articles in insurance industry trade publications quoted insurance industry representatives as saying--usually with their fingers crossed--that the soft market had finally bottomed out, but not overall. They expressed "cautious optimism" that the fierce competition, which dominated the late '80s and most of the '90s, was becoming less fierce in certain areas, such as workers compensation, managed care and long-haul trucking.
These experts cited various reasons for the falling off of competitive pressures. Underwriting losses certainly played a role, especially the devastating losses from Hurricane Andrew and the Northridge earthquake, among other catastrophic occurrences. In addition, the merger and acquisition activity that occurred during those years weeded out some of the less financially secure players. And, finally, the sweet stock market, which had been generating generous investment revenues for the industry during those times, began to turn sour; and insurers began to remember once again that they were in the insurance business after all and should return to the industry's traditional precepts. The property/casualty insurance marketplace was returning to normality, these experts said, but added that it would never again approach the same severe hard market conditions of 1984 and 1985.
Then came September 11, 2001. In addition to the tremendous loss of life and personal grief that the WTC and Pentagon terrorist attacks brought about, the attacks also turned the worldwide life and property/casualty insurance industry marketplace around 180 degrees. The insurance industry faced and still faces billions of dollars in losses spanning virtually every line--life, property, liability, workers compensation, disability, aviation, business interruption and much more. The industry has encountered a catastrophic event unlike any it has ever anticipated and, while life insurers began paying insurance claims immediately after the attacks, and property/casualty insurers immediately began offering financial assistance to businesses in the area that were affected by the attacks, reinsurers have begun retrenching. The effects of that retrenchment have not yet completely filtered down to the insurance consumer; but, according to Peter J. Barrett, group CEO of London-based Bell & Clements, Ltd., an independently owned insurance and reinsurance broker with access to Lloyd's and other London insurance companies, they soon will.
"The worldwide insurance marketplace today is unlike anything anyone has ever seen before. Certainly, I've never seen anything like it," says Barrett, who is a 25-year veteran of the insurance business. "There will be pressure all along the continuum--from retrocessionaires to reinsurers, to direct insurance underwriters, and those pressures will be felt by brokers, managing general agents, retail agents and, ultimately, consumers."
Although Barrett works for a prominent London broker, he was born in America and his area of responsibility for Bell & Clements has included the production, placing and servicing of both Canadian and U.S. facultative and contract business. He started his career with Stewart Wrightson, Ltd., in London on a year's training program, shortly after leaving the University of Dayton. He returned to the United States in 1977, and worked as a casualty broker with Stewart Smith Mid America in Chicago, handling professional liability, railroad liability and various other casualty classes. In 1980, he returned to London to work as a broker in the North American contract division of Stewart Wrightson. He accepted a position with a Lloyd's syndicate, C. J. Warrilow & Others, as an underwriter of both North American Facultative and Contract business. In 1986, he joined Bell and Clements, just three years after the firm was started up.
Although Peter Barrett has spent most of his career in England, he was born in the United States.
Barrett keeps a particularly close eye on the American insurance marketplace. Bell & Clements both arranges and holds binding authorities with Lloyd's and London market companies to write surplus lines business for small to medium-sized commercial accounts, distributed through U.S. managing general agencies (MGAs). "Our risk limits for the facilities we arrange on behalf of our customers are usually up to $1 million for property and $2 million for general liability," says Barrett. "Our average premium is between $2,000 and $2,500. Mercantile stores and various commercial exposures are typical of the type of risk we are involved with. We also write specific personal lines accounts. We don't deal directly with retail agents, with few exceptions, or national wholesale firms. Not that there's anything wrong with that approach, but we prefer to customize our products and deal through MGAs. We have approximately 50 MGAs with whom we have established on-going relationships. In addition, we will work with other MGAs on a risk-by-risk basis until we can establish contract relationship. With new MGAs, it's sort of a learning process."
In putting today's hard market into perspective, Barrett hearkens back to the mid-'80s. He says that in the years 1983, 1984 and 1985, results were terrible for the surplus lines industry, but that in 1986, 1987 and 1988, conditions were "ideal." Then the market started on a long downward slump that lasted throughout the 1990s.
"The hard market of today started to correct itself towards the end of 2000, simply because the industry just couldn't take any more," says Barrett. "More prudent underwriting began to take charge and the market began to turn. It was just a natural process. But September 11 has accelerated that process tremendously."
Barrett maintains that the primary difference between 1984-85 and the year 2001 is that, in the mid-'80s, capital just disappeared from the marketplace. But today, he says, the forces that are driving the hard market are the insurers and reinsurers who are finding it difficult to quantify and judge risks because of both cumulative losses and the events of September 11. "Major reinsurers in the U.S. and on the Continent are looking at risks differently today," he points out. "Many are suggesting excluding terrorism from all risks, everything from the Brooklyn Bridge to Billy Bob's Country BBQ. They are often taking a blanket approach. Reinsurers are increasing prices dramatically and demanding higher retentions. It has become a seller's market. Insurers must decide if they are willing to continue with certain lines of business and pass on increases to buyers, or withdraw."
Of course, this type of situation should be beneficial to the surplus lines industry, notwithstanding the flood of new capital currently available, Barrett says. "We are the safety valve of the insurance marketplace. We capture the business that the standard market is not willing to write. The fact that we enjoy freedom of rate and form allows us to do this. There will be a lot of buyers out there who will find that, in addition to higher prices, certain coverages may become unavailable. In the area of Main Street business, for example, insurers were chasing after those risks for years and so buyers became used to bargain prices and generous conditions. Retail agents who deal directly with those customers are going to have to explain to those buyers that certain markets are no longer available. That's where the surplus lines market comes in. Our role is to provide capacity when the standard market cannot or will not respond."
Barrett says that Bell & Clements' role in this scenario is to put together packages for its customers that will give them more options. "We see ourselves as serving a management function rather than a marketing function," he says. "We can arrange binding authority with a number of strong markets and our strength is that we can work with MGAs to give them the products they can offer to their retail agents. Unlike many brokers in the London market, Bell & Clements has not sought rapid diversification. We prefer instead to specialize in business sectors where we can develop a prominent position through expertise and concentration. Quality of service to our customers has always been more important to us than short-term profit. We feel this is our commercial edge. We make it our business to know our customers and their needs rather well.
"We are not a general broker that accepts any kind of business that is offered," says Barrett. "Rather we prefer to give superior service in classes of business where we know we can excel, and therefore add value, to a select number of quality customers. We are always looking for innovative ways to satisfy the needs of our customers and, in the current difficult market, we believe that will be of the utmost importance. We are positioned to meet the commercial challenges we are all confronted with." *
For more information:
Web site: www.bellandclements.com